While the local economy was hit by the long-standing drought and softer trading conditions, increasing inflation has seen JSE-listed Pioneer Foods increase its group turnover by 5.1% for the four months to January 31, with a 7.6% increase in South African turnover.
However, contracting volumes saw its international turnover decline by 10.3%.
“The 2016/17 financial year will be a tale of two halves for Pioneer Foods. The first-half margin and profitability will be materially impacted by nonrecurring raw material vagaries,” the company said in a statement.
Amid the drought, Pioneer Foods made a conscious decision to guarantee supply for maize meal brand, White Star, notwithstanding high raw material costs and rand volatility. While value growth and market share were positive, a significant profit impact was expected from the expensive procurement position relative to market pricing for the first half.
The balance of the essential foods business performed satisfactorily given a sustained and pleasing performance from Pioneer’s bakeries.
Meanwhile, it stated that the international division encountered strong headwinds. The raisin crop shortfall, significant juice concentrate cost push, volatile currencies and weak consumer demand on the African continent have significantly impacted profitability to date.
“The 2017 raisin crop looks reasonable, which may bolster the second half performance. Final approval from the Kenyan competition authorities for the Weetabix East Africa transaction remains outstanding,” it said.
The company’s groceries division was negatively affected by lower volumes consequent to softer trading conditions, increased competition and significant cost push inflation. However, the high base-effect of beverages in the prior year, owing to the extremely hot summer season, was not repeated this year.
Meanwhile, Pioneer Foods noted that the outlook for the second half of the year was for improved performance, owing to anticipated improved maize profitability; a satisfactory raisin crop; new Weet-Bix capacity coming on stream; the commissioning of the Aeroton bakery upgrade; bakeries in the Western Cape regaining momentum and cost respite on key inputs.